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Friday, July 26, 2019

BIMB Holdings - Steady as She Goes

The 60%-owned Syarikat Takaful chalked in 2Q19 bottom-line of RM81m (-16% QoQ, +61% YoY), meeting expectations. The robust YoY showing came on the back of (i) strong premium growth, (ii) drop in claims, and (iii) better investment related gains. Overall, our forecasts are unchanged. In our opinion, BIMB’s risk reward profile has turned favourable again since share price has fallen 5% in a short 3 weeks after our downgrade. Accordingly, we raise BIMB to BUY but with an unchanged GGM-TP of RM5.00, based on 1.42x 2020 P/B.

In line. Syarikat Takaful (60%-owned) posted 2Q19 net profit of RM81m (-16% QoQ, +61% YoY), bringing 1H19 sum to RM177m (+47% YoY). This is within expectations, making up 48-49% of our and consensus full-year forecasts. The business contributes c.35% to BIMB’s PBT.

Dividend. None declared as Syarikat Takaful only divvy in 4Q.

QoQ. 2Q19 net profit fell 16%, no thanks to weak gross premium (-11%) at both its general (-19%) and family (-8%) businesses. Also, the decline was amplified by the higher surplus to takaful operator/participants (+23%). That said, lower claims (-14%), management expense (-10%), and other opex (-32%) cushioned the tepid showing.

YoY. Gross premium jumped 24% on the back of better credit-related products sales at its family takaful business (+33%). This coupled with lower claims (-3%) and better investment-related gains (+6-fold), led operating profit to grow 2-fold. However, the 3- fold spike in surplus to takaful operator/participants, capped bottom line from rising at a faster pace (+61%).

YTD. Similar to YoY performance, earnings (+47%) were lifted by the: (i) 32% rise in gross premium, (ii) 2% drop in claims, along with (iii) 2-fold rise in investment-related gains. Once more, these were stunted by the 5-fold increase in surplus to takaful operator/participants.

Outlook. Long-term prospects for the takaful industry are rosy backed by positive structural drivers like: (i) an underpenetrated market, (ii) rising medical inflation, and (iii) flourishing Islamic banking sector. Also, the full-year impact of its bancassurance tie-up with Bank Rakyat (which began in 3Q18) is expected to anchor 2019’s premium growth (+10-15%); this is done through credit-related products as seen in its 1H19 results. Without a similar effect in 2020, this should normalize back to mid- to high single digit % level; CAGR from 2013-18 was 8%.

Forecast. Unchanged since Syarikat Takaful’s 1H19 results were in line.

Upgrade to BUY (from Hold) but with an unchanged GGM-TP of RM5.00, based on 1.42x 2020 P/B with assumptions of 13.7% ROE, 10.8% COE, and 4.0% LTG. This comes after share price falling 5% in a short 3 weeks, after our downgrade, turning its risk-reward profile favourable again. Our valuation is largely in line to its 5-year mean of 1.50x but above the sector’s 1.11x; the premium is fair given its 4ppt above average ROE generation. Also, from our reverse SOP assessment, we calculated the market is now only valuing Bank Islam (100%-owned) at 0.83x P/B with 10-11% ROE vs. peers at 1.11x P/B with 10% ROE, implying there is upside from current levels.